• The US dollar is depreciating significantly following the release of a frail CPI.
• The Federal Reserve should no longer worry about the disinflationary trend.
• The US dollar index is falling further and is heading towards 104.00.

The US dollar (USD) is firmly lower on Thursday after the US Consumer Price Index (CPI) for June revealed a significant drop in inflation. Of particular note is retail sales, which fell by as much as 0.1%, indicating that US consumers are no longer willing to pay current prices for goods and are rather waiting for lower prices before making purchases. Add to this a softer print on housing and rents, and it looks like the Fed’s measures are starting to bear fruit.

On the economic front, Thursday’s key data is out, and now the focus will shift Friday to June’s Producer Price Index (PPI) data. In the meantime, markets will want to hear from Fed officials that this data is what they’re looking for, and should prompt a more dovish response from the Fed. With almost two months to go, an initial US rate cut looks set for September.

Daily Market Update: Cuts Are Coming

• We will present you the most essential numbers published this Thursday:
  • US CPI in June:
    • The monthly CPI fell from +0.1% to -0.1% in June.
    • Monthly core CPI fell from 0.2% to 0.1%.
    • The annual CPI fell from 3.3% to 3.0%.
    • The annual core CPI rose from 3.4% to 3.3%.
  • Weekly unemployment benefit claims for week of July 5:
    • The number of recent applications fell slightly, from 239,000 to 222,000.
    • The number of continuing claims increased from 1.856 million to 1.852 million.
• At 15:30 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic participates in a moderated conversation at the NCUA Summit on Diversity, Equity and Inclusion in Minneapolis, United States.
• Stock markets are rising and interest rate cuts have been welcomed on both European and US stock indices.
• The CME Fedwatch Tool generally supports a rate cut in September, despite recent comments from Fed officials. The odds of a 25 basis point cut now stand at 68.1%. The probability of a rate hold is 28.6%, while the probability of a 50 basis point cut is 3.3%.
• The US 10-year reference rate is 4.19% and has remained close to the bottom level all week.

US Dollar Index Technical Analysis: See Below

The US Dollar Index (DXY) is facing a key turning point with the release of the US Consumer Price Index for June. This is a crucial moment for the prospects for rate cuts in September, as any gains interrupt the disinflationary trajectory, which would mean that the September meeting is off the table. So expect markets to give a higher probability to further DXY easing than to a stronger US dollar.

On the other hand, the 55-day straightforward moving average (SMA) at 105.14 remains the first resistance. If this level is reclaimed, 105.53 and 105.89 are the next nearby key levels. The red descending trendline on the chart below at around 106.23 and the April high at 106.52 could come into play if the Greenback makes a significant move higher.

On the other hand, the risk of a dive is increasing with only the double support at 104.81, which is the confluence of the 100-day SMA and the December 2023 green uptrend line, still in place. If this double layer gives way, the 200-day SMA at 104.41 will be the guardian that should catch DXY and avoid further declines. Further down, a correction could target 104.00 as an initial stage.

US Dollar Index: Daily Chart